10 Steps for Theft Management in Fire Departments

July 8, 2015
William Jenaway explains how theft can negatively impact a fire department and what organizations can do to prevent it.

Almost weekly we hear or read about an emergency service organization (ESO) that has experienced a theft of funds, misappropriation of funds, or some similar "fidelity" related loss. These situations create not only a financial challenge for the organization, but present a negative image in the community. 

The financial management issues are typically well managed with the implementation of specific systems providing checks and balances for managing funds. It is up to you to assure your organization has the appropriate methods in place to manage fidelity issues in your organization.

Financial management is just one of several general management practices needing scrutiny by today’s emergency service leadership. Along with finances and budgeting, are identifying and dealing with risks, legal issues, social media, personnel concerns, and strategic planning. All of these issues require solid financial management to assure survival.

You need to be concerned and proactively deal with financial management issues. A financial problem within your organization can not only financially devastate you, it can portray you negatively within the community. As a leader in the community, you personally can receive negative publicity as well. Both you and your organization can suffer the consequences including: 

  • Embarrassment
  • Bad public relations
  • Loss of members or no new members
  • Probation or jail time
  • Monetary fines, or
  • Lawsuits

It could be you on the witness stand, in court, or in the court of public opinion. It is important to you and the organization to take the necessary steps to eliminate the opportunity, means and motive for members to even want to commit a financial wrong against the organization.

You may ask, so what’s the problem? Well, it can often start out subtle. The person charged with managing the funds brings five or six blank checks for signature. At the next review it is reported that one of the checks was voided because of an error. In reality it was cashed. The same situation happens three months later, and so on. As the fear of getting caught diminishes, the amounts increase. By the time the person is caught, the amount can be in the five figure range. Why do we use this example? It is a fairly routine example of the real world situation.

This reference tool is intended to discuss the issues, concerns, and effective practices related to managing the financial systems of fire and EMS agencies.

The Issues

ESOs take a variety of steps to protect their members and their property. They guard against injury with protective gear and secure equipment to prevent damage. Yet two less-visible assets also need their attention: their funds and their reputation in the community.

Unfortunately, losses as a result of employee dishonesty are increasing. ESO funds are often at risk of misuse and embezzlement. This type of loss not only disrupts the organization, but families and communities as well. The damage to an ESO’s reputation in the community can hinder fundraising efforts and good will and can be extremely difficult to repair. The loss of funds can jeopardize high-quality response, equipment and services to the community. Preventive measures, early detection and appropriate insurance are extremely important.

Today’s emergency service organizations are diverse and may:

  • Operate as a social center
  • Manage buildings, apparatus, and assets of the fire department or emergency medical service agency (such as stations, vehicles, equipment, halls, picnic pavilions, field day grounds, and so on)
  • May or may not be incorporated or a public agency
  • May or may not be a 501c3 or 501c4 not for profit corporation under the Internal Revenue Service Code.

The scenario described earlier is only one of many for a fidelity loss. Every year, many unknowing emergency service organizations have money siphoned off by someone they trust. According to research, when these kinds of losses occur, the amount that can be found is usually only a portion of what was taken. Remember that the person or persons doing the embezzling are often in charge of the finances so they can manipulate the books. Directors, managers, chief officers, treasurers, financial secretaries and special event managers all have the potential to become a financial draining on any organizations if they do not perform their duties with fidelity.

Organizational Leadership Plays A Role

The typical organization corporate or business administrative officers generally include:

  • The president runs the day-to-day affairs of the company and executes the company rules, regulations and mission.
  • The vice president takes over the presidency should a vacancy occur, discharges the duties given by the president.
  • The secretary is responsible for the written records and correspondence of the company.
  • The treasurer is responsible for the company finances, collects and disburses company funds.
  • A board of directors is a sub-group of the company given specific tasks by the company.

Each must be held accountable for their role, responsibility, authority, and actions. Each role has a function in the financial management of the organization.

To help you better understand this issue, let’s look at a couple of definitions and explanations.

Fidelity is defined as the strict observance of promises, duties, etc. or adherence to fact or detail. Unfortunately, some officers and managers are not always honest and may be tempted to divert money and other financial assets from your organization for personal gain. This would be known as a fidelity claim, which has reportedly been on the rise.

Directors, managers, chief officers, treasurers, financial secretaries and special event managers could become a financial drain on any organization if they do not perform with fidelity. The real problem for an organization is when these losses occur, they generally occur over relatively long periods of time. This may result in the losses being staggeringly high. Each organization has money and assets it is responsible for. It is important that each agency understands the fidelity requirements and expectations that the officers, members and organization are responsible for.

So who is responsible and for what? This starts with having job descriptions and oversight systems in place for financial operations.

Next you might ask how do you prevent problems? Here are a series of steps that can be taken to help prevent problems, including:

  • Verify officers know their responsibilities.
  • Establish a "checks and balances" procedure for vital functions, including:
    • Paying of bills
    • Auditing your financials
    • Monitoring all required functions and duties

Keep insurance up-to-date, including:

  • Bonding
  • Management liability

Provide guidelines/policies on: 

  • Conflict of interest
  • Whistleblower 
  • Disposition of records

Insurance also plays a role by protecting organizations from the loss of money, securities, or inventory that results from a crime. These generally include claims of employee dishonesty, embezzlement, forgery, robbery, safe burglary, computer fraud, wire transfer fraud, and counterfeiting – but are policy specific, so understand your policy provisions and exclusions by meeting with an insurance professional. You need to be aware that business crime related losses are not typically covered by property insurance policies and crime protection insurance is a necessary component of your protection portfolio.

These crimes may threaten the total existence of your organization – be prepared through risk control and risk financing techniques.

Funds & Embezzlement

Let’s now discuss finances, fire department funds and embezzlement.

Fire department embezzlement has become a significant problem that has adversely affected many organizations. No state or region is immune.  In fact, a recent internet search found over 150 hits for embezzlement by members of organizations within the past two years.

Every year, many unknowing emergency services organizations have money siphoned off by someone they trust. According to research, when these kinds of losses occur, the mount that can be found is usually only a portion of what was taken. Remember that the person or persons doing the embezzling are often in charge of the finances so they can manipulate the books. Directors, managers, chief officers, treasurers, financial secretaries and special event managers hall have the potential to become a financial drain on any organization if they do not perform their duties with fidelity.

The following scenarios are just some of the issues that can be faced.

  • To avoid embarrassment, many agencies keep incidents “quiet” and remove officers, absorbing the loss
  • Some try to get offenders to make restitution without involving authorities … monthly payments
  • If it’s turned in to law enforcement or your insurance company

Case Studies Highlight the Issues

The following case studies illustrate some of the report findings. As can be seen, the amounts are extensive, the level of officership high, and ramifications to the organizations devastating.

Case Study 893

A member was indicted for allegedly stealing $50,000-plus from the fire department while serving as the treasurer for its board of directors. The member wrote unsanctioned checks and made cash withdrawals. "We have (surveillance) video tapes of her at the bank and you can see her making withdrawals on the tapes." The Criminal Investigations Division of the Attorney General Office to prosecute. If found guilty, could face up to 15 years in prison and a $1,000 fine for felony theft in addition to a maximum of five years in prison for the charge of misappropriation by a fiduciary. Fire department has since changed its policy so treasurers may not make cash withdrawals and two signatures are needed on department checks.

Case Study 465

This case involved embezzling almost $250,000 from one fire department over a 14-year period. Allegations of transferring money to his personal business accounts and paying his personal bills with funds given or raised by the fire department. The suspect was charged with embezzlement and falsifying accounts, both felonies. In addition, he was charged with seven counts of wanton endangerment involving a firearm for bringing a gun to the last board meeting that he attended and threatening to take his own life. The defendant will face a jury during his trial. 

Case Study 177

In this case, more than $100,000 was stolen by a brother and sister team. The funds were to be used for a fire company event when they misappropriated a fire company check for $360.09 at a phone store; misappropriated a check for $1,501.95 at a building supply store; and misappropriated checks to a hardware store for $21.18 and $20.75. 

Case Study 517

The amounts alleged in the counts in this case study include the following (over 3 plus years)

  • Theft of over $6,000 in currency
  • A charge of theft of over $70,345 in currency
  • Check in the amount of $4,000 plus

The problems were discovered when the books of the fire company’s treasurer were compared to bank statements. This suspect committed suicide when suspicions rose about his work as the fire department’s treasurer. A lawyer for the fire department announced the embezzlement at a news conference stating “over the last three years, the past treasurer of the volunteer fire department embezzled a substantial amount of funds from the department,” and that the amount “approaches $500,000.”

  • A representative stated there have been “established financial management practices in the past that were allowed to lapse. As a result, there was not the financial oversight that needed to be taking place.”

Case Study 433

Over 18 months, this individual stole more than $7,000. The treasurer stole from his colleagues. He had been charged with theft in past. There were no background investigations conducted. No apology or explanation was offered. No financial reviews were conducted. 

Case Study 091

In this case, tally sheets were “fudged” to show less than actual collected amount and was noticed by treasurer.  An investigation occurred, polygraphs were taken and the coordinator confessed. The fire company implemented new policies for:

  • By-laws and SOG changes
  • Checks & balances
  • Background checks
  • Progressive discipline process

Case Study 213

Thefts can occur from facilities as well. In this case, a juvenile member broke into fire station and stole equipment and a vehicle. Charged with burglary, theft and malicious destruction of personal property, restitution was part of the sentence. Crime insurance coverage is important as restitution, but may not be possible. 

Credit Card Issues & Controls

At this point we should take time to discuss credit cards and the situations they present for theft and how to manage those opportunities.

Case Study 139

This incident found that one officer was able to buy – embezzle that is – over $300,000 of personal items on the fire department credit card. If you have credit cards issued to members or officers, how do you handle this potential loss situation?

When it comes to credit cards, individuals have been charged with

  • Third degree felony charges of theft by failure to make required disposition of funds received
  • Theft by unlawful taking
  • Theft by deception
  • Receiving stolen property

 Credit card accountability starts with:

  • The governing board authorizing the cards
  • Instruct and train members in use of cards
  • Issue cards in names of specific individuals - this helps maintain accountability
  • Require expenses accounts to be submitted and reviewed on, at minimum, a monthly basis
  • Perform periodic analysis of individual card users
  • Prohibit the use of department cards for personal expenses
  • Do not use cards that allow cash advances
  • Establish “reasonable” credit limits
  • Establish guidelines for phone, fax or Internet purchases
  • Bills and watch for “red flags”
  • Have a reconciliation process and time table
  • Never allow anyone to review and approve their own transactions
  • Should be reviewed by more than one person
  • Be sure to verify that items purchased were actually received

Guidelines to Prevent Financial Threats

Now that we have seen the different types of scenarios, results and impacts of theft from ESOs, it is time to review what you can and should do to prevent these types of situations from occurring. If you were asked, how do you prevent problems from occurring, you would probably answer with theses comments:

  • Verify officers know their responsibilities.
  • Establish a “checks and balances” procedure for all vital functions, including:
  • Paying of bills
  • Auditing your financials
  • Monitoring required functions and duties
  • Keep insurance up-to-date, including bonding and management liability
  • Policies on: conflict of interest, whistleblower, disposition of records and an investment policy

10 Best Practices  

VFIS issued 10 practices for ESO financial system management including

  1. Have fire department financial policies in writing
  2. Have two members present anytime cash is changing hands, a central location for collecting cash and have two members present when preparing bank deposits involving cash
  3. Have a credit card accountability procedure in place
  4. Require two signatures for checks and only sign after written in full. No “pre-signing” checks or using signature stamps
  5. Assign a team/committee  investment responsibility, not one person
  6. Review bank statements on a monthly basis
  7. Conduct background checks for personnel with fiduciary duties, example: treasurer. Placing persons with prior dishonesty acts in such positions may result in the voiding of such insurance coverage
  8. If possible, prohibit family members or people with close personal ties from simultaneously holding positions with financial responsibilities, example: president and treasurer
  9. Have adequate insurance to cover risks associated with various aspects for the organization’s finances:
    • Bonding
    • Fidelity coverage
    • Crime coverage
  10. Conduct “audits” of all accounts:
    • Regularly by company “audit committee”
    • A complete, all-inclusive audit, Performed at least annually
    • Most states require fire districts, fire companies and fire departments to obtain an independent audit

Take the time now to review the following questionnaire and take action as needed. Pay attention to your organization’s finances. Whether it is when financial reports are released for review, at periodic organizational meetings or when monthly budget statements are released, pay attention – it’s your money!

WILLIAM F. JENAWAY, Ph.D., CFPS, CFO, CTO, FIFireE, is vice president of VFIS, the country’s leading insurer of fire & EMS agencies. His experience in the fire service includes, fire chief, president, and fire advisory board chair, in addition to being an elected official. This article is excerpted from the VFIS Client handout entitled “Emergency Service Organization Financial Management Practices.”

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